Proto Labs Inc.'s Growth Continued in Q3

By Steve

On Thursday morning,Proto Labs released its third-quarter earnings, which highlighted record revenue for the 13th consecutive quarter. Near the opening of trading, shares were over 7% higher.

The big picture:

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  • Third-quarter revenue increased 24% year over year to $67.8 million, and would've increased by 28% had currencies remained constant.
  • Unique product developers served increased by 24% to a record 12,541 during the quarter.
  • GAAP net income increased by over 19% to a record $12.4 million, translating to earning 0.47 per share, an increase of 17.5%.

Overall, Proto Labs did a great job executing on its long-term strategy of serving more customers and driving positive results.

Source: Proto Labs

What happened during the quarter?Across the board, Proto Labs' results were quite encouraging:

  • 3D printing revenue increased by 79% year over year to $6 million, suggesting continued strength from its Fineline acquisition, and that the company is effectively cross-selling 3D printing services to its existing customer base.
  • Although gross margins fell by 120 basis points year over year to 59.4%, concerns over declining margins may have eased slightly, as the company reported they increased 70 basis points sequentially.
  • North American revenue increased 26%, driven by strong growth in 3D printing and CNC machining services.
  • Despite macro sluggishness, Proto Labs' European segment experienced tremendous revenue growth -- 40% on a constant currency basis and 21% after being converted to dollars.
  • Japan saw revenues increase 33% before currency fluctuations and by 14% after accounting for currency headwinds.
  • Proto Labs' core services, Protomold (injection molding) and Firstcut (CNC machining), saw revenues grow by over 17% and 27%, respectively.
  • Proto Labs generated $13.5 million of cash during the third quarter.

What management had to sayCEO Vicki Holt told investors that Proto Labs "continued to demonstrate strong momentum in the third quarter, reflecting solid execution of our marketing and sales, manufacturing, and new product and service initiatives." During the quarter, Proto Labs' sales and marketing expenses increased by over 36% to a hair over $10 million compared to last year.

Proto Labs also made progress on rolling out recently introduced services, which expand the company's addressable market. Holt highlighted that "demand for our stereolithography [3D printing] service inEurope, launched in the second quarter, has been growing steadily. We are seeing excellent reception for our lathe [milling] process, which is now operational in all of our regions."

Shortly after the end of the third quarter, Proto Labs completed its acquisition of Alphaform, a Germany-based rapid manufacturing and 3D printing service bureau. Holt had much to say about this recent acquisition.

Looking aheadWhen Holt became CEO in early 2014, she laid out the company's three-pronged growth strategy:

  1. Serve more customers
  2. Develop technologies to bring new manufacturing services online
  3. Broaden the capabilities of existing manufacturing services with more materials and complexity

In other words, Proto Labs' long-term goal is to expand the breadth of manufacturing and 3D printing services it offers worldwide, which in turn, allows it serve more customers. Considering the company served a record number of customers in the third quarter, Proto Labs continued making progress toward its long-term strategy, while the underlying business performed well.

The article Proto Labs Inc.'s Growth Continued in Q3 originally appeared on

Steve Heller owns shares of Proto Labs. The Motley Fool owns shares of and recommends Proto Labs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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